ROI calculator

Return on investment (ROI) measures how much you gained or lost relative to what you put in. It is used for everything from stock purchases and property to marketing campaigns and software projects. This calculator gives the simple ROI, the net profit and the annualized return, which is essential for comparing investments held for different lengths of time.

How to use it

1. Enter the amount invested.
2. Enter the final value, or the amount returned.
3. Enter the holding period to get the annualized ROI.

Formulas

• Net profit = Final value - Investment
• ROI = Net profit / Investment × 100
• Annualized ROI (CAGR) = (Final / Investment)^(1 / years) - 1

Worked example

You invest 50,000 and it grows to 80,000 after 4 years. Net profit = 30,000. ROI = 30,000 / 50,000 = 60%. Annualized: (80,000 / 50,000)^(1/4) - 1 = 1.6^0.25 - 1 = 12.5% per year.

Why annualized ROI matters

A 60% return over 4 years and a 30% return over 1 year are not comparable by simple ROI. Annualized, the first is 12.5% per year and the second 30% per year. Always compare investments on an annualized basis.

Marketing ROI example

A campaign costs 20,000 and generates 90,000 in revenue with a 40% gross margin, so gross profit is 36,000. Marketing ROI = (36,000 - 20,000) / 20,000 = 80%. Using revenue instead of profit would wrongly show 350%.

What ROI leaves out

• Risk: two investments with the same ROI can have very different risk.
• Cash flows during the period, such as dividends or additional contributions; use IRR for those.
• Taxes, fees and inflation.